Digital transformation and bank capital adequacy in Sub-Saharan Africa

Abstract

This study examines the impact of digital transformation elements on the capital adequacy of deposit money banks in Sub-Saharan Africa, isolating the capital adequacy component of the CAMEL performance framework using six proxies of digitalization. An ex post facto study with panel data from listed banks in six countries (2013–2022) was analyzed with descriptive statistics, relevant diagnostic tests, and a random effects regression model, validated by the Hausman test. The findings indicate that financial inclusion, internet utilization, and bank size substantially enhance capital adequacy, whereas technology-related investments diminish it due to financial burdens and cyber-risk vulnerabilities. Using ATMs and mobile banking was insignificant, reflecting their maturity as baseline utilities that are already considered basic infrastructure and thus not able to generate a significant impact. The model accounted for 57.6% of the variation in capital adequacy, highlighting the significant yet partial role of digitalization in solvency. Findings highlight that digitalization is not uniformly beneficial; regulators and compliance institutions should integrate digital risks into supervisory frameworks, and banks should prioritize initiatives that strengthen prudential outcomes. The study extends digital transformation literature by addressing capital adequacy, offering evidence-based insights for balancing innovation with systemic stability in Sub-Saharan Africa.